Let’s start with the background for the recent increases in Bank Rate in December and February. Before the pandemic, in late 2019, the economy was in reasonable balance. Unemployment was just below 4% (the lowest for decades), underlying pay growth was 3-3½% YoY, and CPI inflation was close to our 2% target. Economic activity was restrained by Brexit uncertainties, given that the UK’s trading relations with the EU had not been agreed. Against this backdrop, our policy rate, Bank Rate, was at 0.75%, having risen a little in 2017 and 2018. Estimates of the neutral rate are inherently uncertain, but that 0.75% level was ... (full story)